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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Bank lending and CEO turnover: Evidence from China
Organization Unit
Authors
  • Qing He
  • Jiyuan Huang
  • Dongxu Li
  • Liping Lu
Language
  • English
Institution University of Zurich
Series Name n/a
Number n/a
Date 2022
Abstract Text To maintain bank relationship, borrowers have motives to discipline themselves by forcing out underperforming CEOs. In this paper, we show that the state ownership in emerging markets renders this disciplinary mechanism ineffective. Using the contract information of bank loans for Chinese listed firms, we find that higher bank loan intensity overall does not affect the probability of forcing out an underperforming CEO. The absence of disciplinary effect is driven by the bank-firm pairs in which either the borrower or the lender is state-owned. However, the disciplinary effect is significant if a firm’s bank loans mostly consist of secured and short-term bank loans. Bank loans increase the likelihood of a forced CEO turnover, especially when joint-equity banks serve as the main lender. Overall, we propose that state ownership is an important factor driving the inefficiency of credit market in emerging countries.
Other Identification Number merlin-id:22731
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Keywords CEO turnover, bank loans, disciplinary effect, state ownership
Additional Information JEL classification: G21, G30, G32, G38, K22